Who Has the Last Say in Trade?

Steel was the name of the game on Thursday when leaders from both sides met in Washington to hammer out the final phase of a long-standing dispute over imports. The meeting was part of a regular EU-US summit but had been pitched by the media, and a few influential economic advisors, as a battle over free trade. In reality, though, trade was only one of the issues on the agenda which included topics as diverse as the Middle East and the war-on-terror.

Nonetheless, trade – and specifically the dispute over the import of steel – dominated the talks by illustrating a clear rift in the transatlantic partnership. And until the issue is solved, it will be like an anvil driving the two sides to opposite poles.

Steel stalemate

The dispute over steel imports dates back to March when President George W. Bush announced he would levy a protective tariff of 30 percent on all steel products entering the United States. Europe, and Germany in particular, are the largest steel exporters to the US, which is struggling to restructure it’s fragile and out-dated steel industry. The tariff was designed to boost the American domestic steel market in the competition with Europe.

European leaders reacted with protest, but so far it’s only been verbal. The EU as a whole has withheld from any retaliatory action such as a counter-tariff. However, that could change in a few weeks when the EU has to submit a list of all possible products to the World Trade Organization (WTO) for which they want to levy a tariff.

By holding out until the WTO deadline of May 17, the EU leaves all options open and gains a powerful bargaining chip in the steel negotiations. The EU can threaten to place a tariff on citrus fruits and other critical export products from the American South, which depends heavily on European consumption. Or the EU can literally buy its time and argue in front of the WTO for a compensation package for lost steel revenue. Either way, Europe is in a position to push the US in a corner.

Friendly disagreement

But before things got too hot and out of hand on Thursday, US and European trade representatives decided to appear in public as "friends". In the name of harmony and diplomatic niceties, the two sides downplayed the actual tit-for-tat they’ve wielded the past weeks, and referred to it instead as a "slight difference of opinion among friends".

At a press conference in the White House, EU Commissioner Prodi reinforced the chummy attitude by saying "We’ve agreed that our dispute should take place in a friendly manner and according to the rules of the WTO".

Whether or not the one-day summit was enough to deter the two sides from their confrontational course is still to be seen. Over the next few weeks, US trade representative Robert Zoellick and EU trade commissioner Patrick Lamy will work out the details. For now the two steely giants have agreed to disagree, and when it comes to who has the final say, they’ll differ to the authority of the WTO.